Invest or divest?: On the relative improvement potential in outsourcing manufacturing

Dabhilkar, Mandar

KTH, School of Industrial Engineering and Management (ITM), Industrial Economics and Management (Dept.).

2006 (English)In: Proceedings of the 17th meeting of the Production and Operations ManagementSociety: Operations Management in a New World of Uncertainties, 2006Conference paper, Published paper (Refereed)

Dabhilkar, Mandar

Abstract [en]

This dissertation aims to contribute to the discourse on the future of manufacturing in Sweden. It is argued that the real threat does not come from lower wages in Eastern Europe and Asia. Rather it comes from an inability to make the most of existing manufacturing systems.

The joint contribution of the underlying studies that this dissertation is based on provides compelling support for corroborating this line of thought. More important, however, is that in addition to showing that there is room for improvement, a lot of input is provided on how to act creatively for enhanced performance.

The discussion on how to act mainly focuses on three research issues.

First, enhancing continuous improvement capability. The continuous improvement abilities considered most important for Swedish manufacturers to develop are pointed out. That is, the ability to adopt a systematic and strategic approach to continuous improvements, the ability to lead the way towards continuous improvements, and finally the ability to involve customers and suppliers in continuous improvements. Furthermore, the likely positive performance impact of accomplishing this is clarified.

Second, adopting the principles of lean manufacturing. Rather than reinforcing Taylorism, it is shown that lean manufacturing seems to contribute to the creation of sustainable work systems in Sweden. However, a broad process of change awaits the many companies that might aspire to transform their operations in this direction. In order to reap the full potential of this strategy, the work organisation, as well as management accounting and remuneration systems, must change, not only manufacturing processes.

Third and finally, making more effective outsourcing decisions. It is shown that any positive effects of outsourcing manufacturing are more likely to be realized if concurrent initiatives are taken to develop the capability of the manufacturing function. The analysis also indicates a potential for taking a more strategic approach to outsourcing, i.e., outsourcing in order to increase focus on core manufacturing activities and take advantage of the supplier’s higher innovation capability. Moreover, a potential for selecting suppliers more appropriately is also indicated, such as by trying to achieve greater economies of scale.

The chosen methodological approach has been to combine two large-scale surveys of representative samples of Swedish engineering industry companies with two multiple case studies. The surveys measured continuous improvement behaviours, lean manufacturing and outsourcing, and provides descriptive statistics as well as tests of theoretical assumptions. The case studies provide a deeper understanding of researched issues. One was designed to illustrate how the Balanced Scorecard may enhance the continuous improvement capability level, and the other, to hearing some voices of the empirical field.